Deck 16: Creating an Environment for Growth and Prosperity

Question 1

Economic growth will

A)reduce the future real GDP of an economy.
B)expand the production possibilities of an economy.
C)increase an economy's nominal income,but not its real income.
D)increase real output,but the real income level of the country will decline.

Answer 1

B

Question 2

Which of the following is true for the world as a whole?

A)During the past 200 years,the income per person of the world has increased sharply,but there has been little change in the years of life expectancy at birth.
B)During the past 200 years,the years of life expectancy at birth has increased sharply,but there has been little change in the world's income per person.
C)During the 800 years between 1000 and 1800,the increases in both world income per person and life expectancy at birth were small,but both of these indicators have increased sharply during the past 200 years.
D)Both income per person and life expectancy rose steadily during 1000-1800,but neither of these indicators have increased much during the past 200 years as the population of the world has become larger and larger.

Answer 2

C

Question 3

Which of the following is most important if a country is going to achieve and sustain rapid economic growth?

A)large government expenditures as a share of GDP
B)institutions and policies that are supportive of competition (open markets)and freedom of exchange.
C)free elections and political democracy
D)monetary policy makers who are willing to expand the supply of money rapidly

Answer 3

B

Question 4

For a country to double its per capita income every twenty years,it would have to sustain an annual economic growth rate equal to

A)1.75 percent.
B)2 percent.
C)3.5 percent.
D)4 percent.

Question 5

An increase in per capita income will generally lead to

A)more material goods,but a decline in the quality of the environment.
B)a reduction in life expectancy because working conditions are less desirable.
C)an increase in the number of hours worked by residents.
D)an increase in the living standards of most people.

Question 6

The replacement of the phonograph by the cassette tape player and the eventual replacement of the latter by CD and MP₃ players is an example of

A)economies of scale.
B)planned obsolescence.
C)diseconomies of scale.
D)creative destruction.

Question 7

Which of the following is most important if the living standards of people residing in a country are going to improve?

A)growth of population
B)growth of per capita GDP
C)growth of the money supply
D)growth of government expenditures as a share of GDP

Question 8

Which of the following is most likely to help promote the efficient use of resources and rapid economic growth?

A)high tariffs and imposition of other trade restrictions
B)high marginal tax rates
C)an open and competitive capital market
D)high rates of inflation

Question 9

Measured in 1990 dollars,the GDP per person of the world was $667 in 1813.By 2003,the world's income per person had risen to

A)nearly $1200,almost twice the level of 1813.
B)$2,422,almost four times the level of 1813.
C)a little more than $3,600,approximately six times the level of 1813.
D)$6,516,nearly ten times the level of 1813.

Question 10

When per capita real GDP is increasing,real output is growing

A)more rapidly than prices.
B)more rapidly than population.
C)less rapidly than prices.
D)less rapidly than population.

Question 11

If a poor country is going to grow rapidly and achieve a high level of per capita income,which of the following is most important?

A)abundant natural resources
B)substantial aid from rich countries
C)central planning and a high level of government expenditures
D)institutions and policies that encourage productive activities

Question 12

When competition is present and private ownership rights are clearly defined and securely enforced by the legal system,business firms will have a strong incentive to

A)innovate and develop better products and lower cost production methods.
B)spend time attempting to plunder (take)the resources of others.
C)engage in wasteful activities that increase the cost of producing goods and services.
D)use resources during the current period rather than conserving them for the future.

Question 13

Economic growth is important because expansion in the output of goods and services

A)necessarily creates more jobs (more work for people).
B)makes it possible for individuals to consume more and achieve higher living standards.
C)leads to an increase in the general level of prices.
D)generates additional tax revenues for the government.

Question 14

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820,but by 2003,life expectancy had risen to

A)36 years.
B)44 years.
C)52 years.
D)64 years.

Question 15

The major sources of economic growth are

A)gains from trade,entrepreneurial discovery,and investment.
B)high taxes,an expansion in the size of government,and restrictions on investments by foreigners.
C)rapid expansion in the supply of money,trade restrictions,and government licensing of business activities.
D)free and open elections and politicians who are willing to place the general welfare of the populace above their political ambitions.

Question 16

If real GDP is increasing more rapidly than population,

A)population must be declining.
B)the country will have to export more than it imports.
C)the general level of prices must be increasing.
D)per capita real GDP will be increasing.

Question 17

During the past 200 years,income per person has

A)increased in the developed countries of Western Europe and North America,but declined in the rest of the world.
B)declined in the developed countries of Western Europe and North America,but increased in the rest of the world.
C)increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800.
D)Increased far less rapidly in both developed and less developed countries than during the centuries prior to 1800.

Question 18

Which of the following did Thomas Malthus believe would deter sustained increases in the growth of income per capita?

A)excessive growth of government expenditures
B)rapid growth of population
C)the availability of natural resources
D)adverse climate conditions

Question 19

Which of the following is most important if a country wants to move from a low-income to a high-income status?

A)high rates of monetary growth.
B)sustained economic growth.
C)high real interest rates.
D)high nominal interest rates.

Question 20

According to Angus Madison,a leading authority in the area,world per capita GDP

A)increased by about 50 percent during the 800 years following year 1000,but it increased by nearly tenfold during the past 200 years.
B)increased by nearly tenfold during the 800 years between 1000 and 1813,but it increased by only 50 percent during the past 200 years.
C)has grown steadily during the past 1000 years.
D)Grew at an annual rate of more than 2 percent during 1000-1813,but the annual growth rate has declined as the population increased during the past 200 years.

Question 21

Investment in both physical and human capital tends to enhance economic growth because it generally

A)increases consumption during the current period.
B)makes it possible for individuals to produce more goods and services per hour worked.
C)encourages firms to expand output by employing more low productivity workers.
D)encourages workers to unionize and thereby fight for higher wages.

Question 22

Obstacles that restrict trade,either domestic or international,will

A)reduce output,income,and the general living standard of the populace.
B)help people achieve higher income levels.
C)help promote high rates of economic growth.
D)encourage domestic business firms to expand output so they can achieve larger gains from the adoption of mass production techniques.

Question 23

The successful introduction and adoption of a new product or process is called

A)invention.
B)innovation.
C)economies of scale.
D)economic growth.

Question 24

In a country that is experiencing economic growth at 7 percent per year,per capita income will double in approximately

A)seven years.
B)ten years.
C)fourteen years.
D)twenty-one years.

Question 25

Which of the following is important if a country is going to achieve and sustain high rates of economic growth?

A)investment in physical and human capital
B)improvements in technology
C)institutional and policy arrangements consistent with economic efficiency
D)All of the above.

Question 26

The replacement of older products by newer improved ones is called

A)trickle-down economic growth.
B)creative destruction.
C)economies of scale.
D)planned obsolescence.

Question 27

If the per capita income of a country is growing at 2 percent per year,approximately how long will it take for that income to double?

A)twenty years
B)twenty-five years
C)thirty-five years
D)seventy years

Question 28

The "rule of 70" is a simple rule

A)70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates.
B)70 multiplied by the growth rate) that approximates the number of years it will take for income to double at various growth rates.
C)70 divided by the percentage of population over age 70) that can be used to approximate a nation's growth of real GDP.
D)70 multiplied by the percentage of population over age 70) that can be used to approximate a nation's growth of real GDP.

Question 29

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?

A)higher tax rates
B)a higher rate of investment
C)a smaller trade sector
D)greater use of taxation to transfer income from the rich to the poor

Question 30

To move up the income ladder and achieve high-income status,countries must

A)have sustained economic growth.
B)restrict international trade.
C)encourage the production of consumption goods rather than investment goods.
D)maintain high inflation.

Question 31

Which of the following is most likely to be a major source of growth in per capita GDP?

A)a high investment/GDP ratio
B)a high rate of inflation
C)rapid population growth
D)rapid growth in the money supply

Question 32

In 1960 the per capita GDP of Hong Kong was substantially less than that of Argentina and Venezuela.By 2005,the per capita income of Hong Kong was more than three times the figures for Venezuela and Argentina.This dramatic change occurred because

A)Venezuela and Argentina lacked the natural resources of Hong Kong.
B)the United States provided aid to Hong Kong but not to Argentina and Venezuela.
C)Hong Kong was able to achieve and sustain a high rate of economic growth while the growth rates of Argentina and Venezuela were exceedingly low.
D)Hong Kong was a developed country in 1960,but Argentina and Venezuela were not.

Question 33

Which of the following is a driving force underlying economic growth?

A)trade restrictions that protect domestic businesses from competition with foreign producers
B)regulations that require businesses to obtain permission from the government before starting a new business
C)tax increases that expand the revenues of the government
D)entrepreneurial discovery and production of improved products

Question 34

Which of the following is true?

A)Real GDP is a measure of income,but not output.
B)Real GDP is a measure of output,but not income.
C)Real GDP is a measure of inflation.
D)Growth of output is necessary for the growth of income.

Question 35

Which of the following would be most likely to cause the per capita income of less-developed countries to rise?

A)development of strong labor unions
B)more rapid population growth
C)investment expenditures that enhance the human capital of labor force participants
D)an international minimum wage law

Question 36

Which of the following would be most likely to improve the standard of living of the residents of a less-developed country?

A)the development of strong labor unions
B)a sharp increase in the legal minimum wage
C)an increase in expenditures on education and capital investment
D)rapid growth rate of the money supply

Question 37

When individuals and businesses are permitted to trade freely over a larger market area,

A)wages will decline to the level of the poorest country in the region.
B)the monopoly power of business firms will increase.
C)they will be able to produce a larger output and consume a more diverse bundle of goods.
D)businesses will be able to earn higher profits,but the income levels of individuals will decline.

Question 38

Country A and country B initially have the same per capita income.Suppose that A sustains an annual growth rate of 3.5 percent,while the annual growth rate of country B is 1.75 percent.The "rule of 70" indicates that after forty years,the per capita income of country A will be approximately ____ that of country B.

A)one-half
B)70 percent greater than
C)twice
D)four times

Question 39

An increase in real per capita income will generally lead to

A)a cleaner environment and more time for recreation.
B)a reduction in life expectancy because working conditions are less desirable.
C)an increase in the number of hours worked by residents.
D)an increase in real GDP that is less rapid than the increase in population

Question 40

An economy growing at a consistent rate of 5 percent per year will double its income in

A)twenty-five years.
B)twenty-one years.
C)fourteen years.
D)twelve years.

Question 41

Which of the following would be most likely to improve the standard of living of people in less-developed nations?

A)the development of strong labor unions
B)an increase in foreign investment
C)an increase in the share of the population under fifteen years of age
D)higher tariffs and the imposition of other restraints designed to restrict international trade

Question 42

Which of the following would be most likely to improve the standard of living of a less-developed country?

A)development of strong labor unions
B)more foreign investment,attracted by the expectation of economic and political stability
C)adoption of trade barriers (higher tariffs and quotas)
D)widespread use of price controls to allocate goods and resources

Question 43

Why do political instability and insecure property rights retard economic growth?

A)Fear that private property will be confiscated substantially reduces the incentive to invest and create wealth.
B)When property rights are insecure,foreign investors will be reluctant to invest in the country.
C)Savings will tend to flow out of a country if individuals fear their property is insecure.
D)All of the above are correct.

Question 44

Which of the following is most likely to be a serious obstacle retarding the growth of less-developed nations?

A)a lack of knowledge about modern technology
B)a lack of natural resources
C)slow population growth
D)low capital formation as the result of a weak legal system

Question 45

In recent years,wireless cellular telephones have been replacing land-line phone service.This is an example of

A)economies of scale.
B)division of labor.
C)creative destruction.
D)entry barriers into a market.

Question 46

When competition is present and property rights secure,people will be encouraged to

A)plunder the resources of others.
B)pay the lowest possible wages.
C)provide others with things that they value in exchange for income.
D)Invest in other countries where markets are less competitive and property rights less secure.

Question 47

When regulations interfere with exchange and limit entry into various businesses and occupations,they will

A)help a country achieve more rapid economic growth.
B)promote more efficient use of investment capital by entrepreneurs.
C)retard economic progress.
D)increase the profits of business firms.

Question 48

When the markets of an economy are more competitive,economic growth

A)is harmed by the resulting low rates of profit for industry.
B)is enhanced because producers have a stronger incentive to provide goods efficiently.
C)will be slower because prices do not rise as rapidly.
D)is unaffected.

Question 49

A legal system that protects private property and enforces contracts in an even-handed manner helps promote economic growth because it

A)makes it possible for individuals to generate large incomes and get ahead without cooperating with others.
B)provides people with a strong incentive to supply others with things that they value at an economical price.
C)encourages people to use resources now rather than conserving them for the future.
D)keeps the real wages of workers low and thereby makes it possible for business firms to supply goods and services economically.

Question 50

In a market economy,what determines whether an entrepreneur will continue in business or terminate the production of a new product?

A)government regulations
B)licensing by industrial development agencies
C)the profit or loss of the business
D)the taxes paid to the government relative to the subsidies received

Question 51

When a country's inflation rate varies substantially from year-to-year and is therefore difficult to predict,this will

A)reduce the volume of trade and the gains derived from it.
B)reduce the risk accompanying investment.
C)encourage entrepreneurs to innovate and develop better products.
D)increase the level of foreign investment in the country.

Question 52

Which of the following is an important ingredient of efficient economic organization?

A)high marginal tax rates
B)competitive markets
C)rapid increases in the money supply
D)imposition of high tariffs that will protect domestic producers from the ravages of foreign competition

Question 53

Monetary and price instability will

A)make it easier for both individuals and businesses to plan wisely for the future.
B)generate uncertainty,and encourage investors and businesses to move their activities to countries with a more stable monetary environment.
C)encourage businesses to invest and expand their future output.
D)encourage domestic citizens to increase their rate of saving.

Question 54

Which of the following will discourage investment?

A)well-defined property rights
B)monetary instability
C)a low and steady rate of inflation
D)low tax rates

Question 55

Which of the following goods are available at highly economical prices because the use of mass production techniques substantially reduces their per unit production costs?

A)automobiles
B)DVD players
C)microwave ovens
D)all of the above

Question 56

(I)In a competitive capital market,private investors have a strong incentive to evaluate projects carefully and allocate their funds toward those projects expected to yield the highest rates of return.
(II)Profitable projects will tend to increase both the wealth of the investor and of the nation.

A)I is true;II is false.
B)I is false;II is true.
C)Both I and II are true.
D)Both I and II are false.

Question 57

Which of the following factors would be most likely to encourage capital formation in a less-developed nation?

A)high and variable rates of inflation
B)tariffs and quotas that restrict international trade
C)a legal system that provides for secure property rights and even-handed enforcement of contracts
D)high marginal tax rates

Question 58

Which of the following would be most likely to encourage capital formation in a less-developed country?

A)the expectation of sustained high inflation
B)the expectation that property rights will be highly secure in the years ahead
C)the imposition of high tariffs and other restraints limiting imports
D)higher personal and corporate tax rates

Question 59

When the government is heavily involved in the regulation of business activity,entrepreneurs will be encourage to spend more time and resources on

A)research and the development of better products.
B)keeping their production costs low.
C)rent seeking.
D)productive activities and less on political lobbying.

Question 60

When the residents of a nation are free to trade with foreigners,domestic producers will be able to

A)export more goods for which they are a high-cost supplier.
B)supply a larger quantity of goods they can produce at a relatively low cost.
C)charge higher prices then would otherwise be the case.
D)survive in the marketplace even if they do not produce efficiently.

Question 61

Which of the following will tend to retard the growth and prosperity of a country?

A)imposition of price controls and regulations that restrain domestic and international trade
B)an expansionary monetary policy that leads to high rates of inflation
C)high marginal tax rates
D)all of the above

Question 62

(I)Governments that respect property rights and freedom of exchange while following monetary (and fiscal)policies consistent with relative price stability,establish the foundation for economic growth.
(II)Governments have often diminished the economic prospects of a nation by levying high taxes,instituting price controls,and following inflationary monetary policies.

A)I is true;II is false.
B)I is false;II is true.
C)Both I and II are true.
D)Both I and II are false.

Question 63

If a nation is going to achieve and sustain a high rate of economic growth,it must

A)prohibit low-wage foreign producers from supplying goods to the domestic market.
B)have an abundant domestic supply of low cost energy resources.
C)have a mechanism capable of attracting savings and channeling them into wealth-creating projects.
D)impose regulations that will limit the intensity of competition among domestic firms.

Question 64

(I)A monetary policy that results in price stability will encourage the realization of gains from trade and thereby help promote economic growth.
(II)High tariffs and restrictive quotas will encourage rapid economic growth.

A)I is true;II is false.
B)II is true;I is false.
C)Both I and II are true.
D)Both I and II are false.

Question 65

An open capital market affects a nation's economic growth by

A)channeling capital into productive projects and away from wasteful projects.
B)rewarding investors who find the most productive projects and invest in them.
C)making the lowest-cost capital available from around the world.
D)all of the above.

Question 66

Which of the following is true?

A)Tax rates do not influence economic growth.
B)Countries with high marginal tax rates have generally had higher rates of economic growth than those with low tax rates.
C)Countries with low marginal tax rates have generally had higher rates of economic growth than those with high tax rates.
D)Countries that impose high marginal tax rates at low-income thresholds generally have high rates of economic growth.

Question 67

Which of the following would be most likely to help the residents of a nation produce a larger output and consume a wide variety of products at economical prices?

A)imposition of tariffs on imported goods
B)quotas that protect domestic businesses against foreign producers that pay workers low wages
C)free trade
D)exchange rate controls

Question 68

If the political leaders of a country want to promote economic growth,which of the following policy alternatives would be most effective?

A)imposition of price controls on agricultural products in an effort to keep food cheap
B)a public-sector investment program financed by highly progressive taxation
C)low taxes,a monetary policy consistent with long-run price stability,and the abolition of price controls and trade restrictions
D)expansionary monetary policy designed to keep interest rates low

Question 69

When the money supply is expanding and prices rise rapidly,economic growth

A)is slowed by the resulting unpredictability of the future level of prices.
B)is enhanced as economic activity grows more rapidly.
C)is enhanced because profits are higher so that capital investment is greater.
D)is enhanced because existing debt is reduced in value,so people are willing to buy more goods.

Question 70

(I)With trade,individuals will be able to use more of their time and resources producing items they can supply economically and less time and resources producing goods that they can supply only at a high cost.
(II)Reductions in trade barriers will expand the productive potential of the economy.

A)I is true,II is false.
B)I is false,II is true.
C)Both I and II are true.
D)Both I and II are false.

Question 71

How do high tariffs and other restraints on international trade affect a nation's prosperity?

A)They increase employment and thereby promote the growth of real GDP.
B)They prevent the nation from fully realizing the potential gains from specialization,exchange,and competition.
C)They protect domestic producers and thereby promote economic growth.
D)Both a and c are correct.

Question 72

Which of the following is true?

A)Marginal tax rates that take a large share of income will enhance the incentive of individuals to invest and engage in productive activities.
B)High tax rates will tend to drive investment funds and highly productive citizens to other countries where tax rates are lower.
C)As marginal tax rates increase,individuals get to keep a larger share of their earnings.
D)Countries can gain by imposing higher tariffs and other barriers that will restrain international trade.

Question 73

Which of the following is true?

A)In a competitive capital market,private investors have a strong incentive to evaluate projects carefully and allocate their funds toward those projects expected to yield the highest rates of return.
B)In a competitive environment,profitable investment projects will tend to increase the wealth of the nation.
C)When investment funds are allocated by governments (rather than capital markets),political clout rather than the expected rate of return will generally determine which projects are undertaken.
D)All of the above are correct.

Question 74

Which of the following would be most likely to enhance the growth rate of an economy?

A)imposition of a quota restricting the quantity of steel imports
B)gradual elimination of all tariffs over the next 10 years
C)legislation limiting the number of hours employees can work during a week to 32
D)legislation requiring employers to provide one year of severance pay to any employee who is dismissed from employment

Question 75

How do high marginal tax rates affect the economic prosperity of a nation?

A)They reduce the incentive of individuals to earn reported income.
B)They encourage the nation's most productive citizens to emigrate to countries where taxes are lower.
C)They discourage foreigners from investing in the country.
D)All of the above are correct.

Question 76

(I)Policies such as price controls,licensing restrictions,and high taxes that reduce the volume of exchange will retard economic progress.
(II)Political instability,regulation,and high rates of taxation have undermined private ownership rights in many countries,reducing economic prosperity.

A)Both I and II are true.
B)Both I and II are false.
C)I is true;II is false.
D)I is false;II is true.

Question 77

Which of the following is an important ingredient for the achievement of efficient economic organization?

A)highly restrictive exchange rate controls
B)secure property rights and political stability
C)high and variable rates of inflation
D)high marginal tax rates

Question 78

Which of the following policies would be most likely to reduce the efficiency of a country's economic organization?

A)a legal structure that establishes secure property rights
B)imposition of tariffs and other barriers limiting international trade
C)competitive markets
D)a stable monetary system

Question 79

Economic growth is likely to be faster when

A)higher tax rates are imposed on high income individuals in order to provide greater cash payments to the poor.
B)domestic markets are opened to foreign sellers and foreign investors.
C)the supply of money is increased rapidly so individuals have more money to spend.
D)dramatic changes in political and legal institutions occur often.

Question 80

Which of the following will be most likely to contribute to the growth of a less-developed country?

A)price controls that keep the cost of agricultural products low
B)rapid population growth
C)exchange rate controls and export restrictions
D)secure property rights and low marginal tax rates